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Gold Higher on Spanish Bond Auction

Release Date: 
Tuesday, April 17, 2012

Gold prices moved higher as the euro gained on the dollar after a well-received auction of Spanish bonds. Gold traded at $1654.40 per ounce at 6:15 AM Pacific Time on the New York Spot Market with silver at $31.84 per ounce.

Despite the better than expected auction, continued concerns about Spain's finances and a worsening European debt crisis may drive gold prices higher in the future, say analysts. "Jitters over the debt crisis in the monetary union are far from over, and this could be potentially gold-supportive in the second quarter," VTB Capital said in a note. "Many still doubt that Madrid can implement the necessary budget cuts without the situation spiraling out of proportion in an economy that is already suffering from high unemployment and negative growth rates."

"We expect that if European credit conditions continue to deteriorate, gold (along with the dollar) could start to better reflect the growing tensions by moving higher on its steam," Ed Meir, an analyst at INTL FCStone, said in a research note.

"We're getting to an area where it's probably smart to get back into the market," said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd.

Gold may reach $1,830 in the third quarter and $1,900 in the fourth, according to the median estimate of 19 analysts compiled by Bloomberg.

India's central bank cut interest rates for the first time in three years to stimulate economic growth. "The unexpected lowering of the interest rate in India could lend support [for gold]" as it stimulates growth and demand for the precious metal, Commerzbank said.

 (Source: "PRECIOUS-Gold edges higher as Spanish bill sale lifts euro," Reuters, April 17, 2012; "PRECIOUS-Gold edges down with euro; Spain in focus," Reuters, April 17, 2012; "March Gold Sales Drop as Stability Returns, Perth Mint Says," Bloomberg, April 17, 2012)

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